Correlation Between Cheesecake Factory and Diageo PLC

Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and Diageo PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cheesecake Factory and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Cheesecake Factory and Diageo PLC ADR, you can compare the effects of market volatilities on Cheesecake Factory and Diageo PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cheesecake Factory with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and Diageo PLC.

Diversification Opportunities for Cheesecake Factory and Diageo PLC

-0.68

Correlation Coefficient

Cheesecake Factory  Diageo PLC

Excellent diversification

The 3 months correlation between Cheesecake and Diageo is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and Cheesecake Factory is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Cheesecake Factory are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Diageo PLC go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Diageo PLC

Given the investment horizon of 90 days The Cheesecake Factory is expected to under-perform the Diageo PLC. In addition to that, Cheesecake Factory is 1.21 times more volatile than Diageo PLC ADR. It trades about -0.04 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about 0.03 per unit of volatility. If you would invest  12,449  in Diageo PLC ADR on October 11, 2024 and sell it today you would earn a total of  95.00  from holding Diageo PLC ADR or generate 0.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Cheesecake Factory  vs.  Diageo PLC ADR

The Cheesecake Factory

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cheesecake Factory and Diageo PLC

The main advantage of trading using opposite Cheesecake Factory and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheesecake Factory position performs unexpectedly, Diageo PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Diageo PLC will offset losses from the drop in Diageo PLC's long position.

The idea behind The Cheesecake Factory and Diageo PLC ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.